Pub Conversions - An interesting VAT development opportunity
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25th June 2013
A recent Tribunal decision has led to an interesting
opportunity on the VAT recovery on costs when converting a pub to ‘new’
residential and could change the way in which developments are treated
for VAT purposes in the future. This has wide range implications so
read here for more details.
The case surrounds a company called Alexandra Countryside
Investments Limited who converted a public house into two semi-detached
houses. The company claimed the input VAT back on the work on the basis
that it would be making a VATable sale, albeit zero rated. However HMRC
rejected the claim as part of the public house had been used as a flat
for a manager and so the conversion did not result in new dwellings
being created but the conversion of an existing dwelling to form two
more. The sale or lease of this would be exempt.
The case challenged HMRC's interpretation of the VAT law and
their published guidance which states that "to qualify for zero-rating
the conversion must only use non-residential parts of the building".
The Tribunal found that contrary to HMRCs guidance, it is not
necessary for any conversion only to use non-residential parts of the
building for zero rating to apply where additional dwellings are
created. Therefore, in the example of a property being split vertically
into a pair of semi-detached houses the onward sale or long lease will
be zero rated.
Whether HMRC will adopt the Tribunal’s approach remains to be
seen but if you have any clients who have converted previously or are
thinking on converting to residential there may be an opportunity for
We receive many calls each week regarding conversions of
‘commercial’ buildings into dwellings and it is important to consider
the VAT position to ensure clients go into developments with the
correct costings whilst maximising savings.
Please do not hesitate to contact our free helpline to discuss
any potential developments that you or your clients may be involved in.
In the majority of cases our advice can add value and increase profits.
About the Author
VAT People are leading VAT and Customs Duty
consultants based in the
North West of England. We work with a wide range of businesses
throughout the UK as well as assisting our accountancy colleagues to
unravel the thorny VAT issues for their clients. We are one of the UK's
largest and most comprehensive sources of VAT and Customs advice, our
consultancy team having over 140
years of experience in VAT and Customs
gained in either HMRC or a Big 4 accountancy practice environment.
Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.
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Article Published/Sorted/Amended on Scopulus 2013-07-01 09:15:33 in Tax Articles